Stocks & Commodities V. 26:9 (50): Explore Your Options by Tom Gentile

Stocks & Commodities V. 26:9 (50): Explore Your Options by Tom Gentile
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Explore Your Options by Tom Gentile

CREDIT SPREAD TO COLLAR SPREAD?

I have heard of using a credit spread get into a collar. This makes sense me, but Iím not sure when to make the adjustment. Is it better to do it before or after expiration?

Rolling a credit spread into a collar is a reasonable strategy in certain situations. Letís first consider using puts to buy stock and then look at put credit spreads. If you have a bullish view on a stock and are willing to buy it at a lower price from where it currently is, you might sell puts with strike prices below the current stock price and pocket the premium. If the stock falls, you get assigned on the puts and acquire the stock at the strike price of the put option. This is a common strategy that is used relatively often.




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